Dr. Vincent Stammers, senior economist at Commerzbank, says euro zone inflation rose to 2.5% in March, driven entirely by higher energy prices linked to the Iran war, while core inflation fell to 2.3%. They argue that the outcome matches the ECB’s dovish scenario, which means at most there will be another rate hike as higher energy and fertilizer costs gradually push up core and food inflation in 2026.
Energy-driven spike but limited ECB response
“Despite the rise in energy prices, real inflation rates in March are in line with the ECB’s lightest scenario. This suggests that the ECB is unlikely to raise its key interest rates as many times as the market expects.”
“Over the course of the year, however, higher energy prices will also cause the key rate to rise – even if active hostilities end in the next two months and the oil price begins to fall again. This is because the current rise in energy and fertilizer prices will impact other core components of inflation with a certain lag. Thus, by the latest quarter of the fourth quarter of this year, higher energy prices may offset the slower growth in labor costs and cause the key rate to rise again.”
“Two weeks ago, the ECB published its own scenarios for inflation trends in relation to the war in Iran. The lightest scenario in terms of inflation is based on the low energy prices recorded on March 11. The two other scenarios assume significantly higher energy prices.”
“However, the March inflation rates released today are most in line with the ECB’s mild scenario, with inflation in the euro area climbing slightly above the 3% mark in the second quarter. This argues against multiple interest rate hikes by the central bank, as is currently expected by the market.”
“We expect the ECB to raise key interest rates once in April or at least signal a rate hike in June. The April inflation rate will also be published on April 30, the day of the next ECB Governing Council meeting.”
(This article was created with the help of an artificial intelligence tool and reviewed by an editor.)
